MARKET SUMMARY 12-10-2021
This morning’s release of the Consumer Price Index shows a rate of inflation the market hasn’t seen in nearly 40 years. Inflation in November rose to 6.8%. This is the highest since 1982, and the U.S. has now experienced six months of over 5% inflation. Those inflation pressures are the result of a combination of monetary policy, logistics and transportation issues for goods, and an overall tight commodity supply picture. The commodity markets can act as a hedge against inflation, and early session buying on Friday was noticed after the numbers were released. Going forward, the inflation pressures look to stay in front of the market. The market in general will be closely watching the actions of the Fed and interest rates. The possibility of a tighter monetary policy sooner than later could be used to help slow the overall inflation rate.
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CORN HIGHLIGHTS: Corn futures initially traded higher this morning before breaking back down to settle 1-3/4 cents lower on the day. Mar closed the day down 1-3/4 at 5.90 while Jul ended only down 0-3/4 at 5.91 and Dec 22 settled at 5.51 down 1-1/4.
Overall, corn ended the week on the positive side of things with a gain of 6 cents in Mar, while Dec 22 lost 1-1/4 cents. The market was expecting to see some small reductions in yesterday’s USDA ending stocks number which came in unchanged from November at 1.493 billion bushels, and the world ending stocks number was increased to 305.5 million metric tons from 304.4 million metric tons. It is encouraging that the market closed higher on what would be considered slightly bearish numbers. Ethanol margins remain good which should keep basis firm, and export sales are strong. This week’s export sales totaled 44.58 million bushels of which 25.8 million are needed per week to reach the USDA’s goal. Eyes continue to be on South America’s weather and any continued deterioration may push prices higher.
SOYBEAN HIGHLIGHTS: Soybeans continued yesterday’s rally to finish the day up 3-1/4 cents in the Jan and Jul contracts, while new crop Nov finished 1 penny in the black. The trade was choppy after a strong 8:30 reopening, but Jan finished at 12.68-1/4, up 3-1/4 cents, Jul closed at 12.88, up 3-1/4 cents, and Nov 22 settled up 1 at 12.48-3/4.
Jan soybeans ended the week with only a modest gain of 0-1/2 cents, while new crop Nov 22 gained 14-3/4 cents. Yesterday, like in corn, the USDA chose to keep soybean ending stocks at 340 million bushels which is unchanged from last month. The trade was expecting a small increase in supplies, which made the report mildly bullish. Beans are currently trading near the top end of their recent range and have been supported by the 20-day moving average which sits at 12.57. Resistance sits at the top end of the range near 13.00. The 100-day moving average also provided some close in resistance at 12.82. The market continues to be supported by domestic crush demand as margins are still quite strong, which should be lending support to basis. Today, meal was the strong leg in the complex, which was able to lend support to beans, while soybean oil continued its slide lower to prices not traded since June. The trade is keeping a close eye on South American weather. The dryness continues to be in the forecast for northern Argentina and southern Brazil. With Argentina being a big exporter of meal, any adversity felt there will be felt in the meal market and ultimately beans.
WHEAT HIGHLIGHTS: Wheat futures rebounded at the end of a difficult week on some profit taking and short covering. Mar Chi gained 8-1/2 cents, closing at 7.85-1/4 and Jul added 8-1/4 to 7.83. Mar KC was 9 cents higher, closing at 8.05-1/2 and Jul gained 7-1/4 at 7.98-1/2. For the week, Mar futures lost 18-1/2 cents.
Wheat futures may be trying to put in a technical bottom with the turn higher in prices on Friday, as daily charts signal a hook reversal bottom. Next week’s trade may be key to the recovery, as wheat futures are trading 0.90-1.00 off the November highs. The release of the latest CPI data this morning, reflecting inflation at 6.8% year-over-year, helped bring money into the ag commodities to start the day. The inflationary concerns have investors looking to hedge against inflation and wheat is one of those strategic plays. The U.S. ending stocks estimates and global stockpiles remain extremely tight, despite the addition of bushels added to the total on the USDA report on Thursday. Most notably, Australia’s wheat crop estimate was bumped up, from 31.5 mmt to 34.0 mmt or 1.25 bb. Russia’s wheat crop estimate was raised 1.0 mmt to 75.5 mmt or 2.77 bb. Prices have likely gone too far to the upside, but are trying to find that “value spot” within the trading range. U.S. demand has slipped at the higher price levels, which added to the selling pressure. Talk and rumors of China actively buying French and Australian wheat have helped build a bottom in global wheat prices in the near term. Weather will be a focus domestically. A strong snow event across the northern Plains and forecasted rainfall in the South should be beneficial to wheat crops in the U.S. From now until the end of the year, wheat prices will likely stay choppy, and watching the demand tone for early 2022. Technically, the wheat futures may have put in a turn on the charts as prices found a near-term potential floor. It will still be up to demand to step forward to support prices.
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Author
John Heinberg